Needham: Apple stock a 'strong buy' because of Macs

Apple's second-quarter performance warrants a "strong buy" rating for its stock, according to analyst Charlie Wolf of Needham & Company. Wolf claims that there is only "one story" in the company's results, which is a 51 percent growth in Mac sales, distributed evenly across regions and different price segments; by comparison, the surrounding computer market only rose 16 percent. This is said to have been fueled by factors such as the spread of Apple Stores, the dual-OS abilities of Mac OS X Leopard, and the iPod's "halo effect," which leads some Windows buyers to switch over to Macs entirely.

Sales of the iPhone, estimated at 1.7 million units, are said to have been below Needham's forecasts, but in excess of Apple's. More importantly, Wolf argues, Apple is on the verge of releasing the 3G iPhone, and will probably be introducing a new pricing and distribution model as well as a host of new international carriers. Apple may in fact be moving away from requiring revenue sharing from carriers, to a system in which its partners subsidize part of the price of a phone.

Wolf notes that Needham is cutting its 2008 EPS rating for Apple from $5.35 to $5.25, on the basis of lower interest income connected to sliding rates. 2009 EPS predictions have risen from $6.65 to $6.70, though, and Needham's current price target is $235.

Filed under: Investor, Apple